Prepping for a possible Eagle Ford bust

Updated 6:21 pm, Friday, May 10, 2013

Photo: Eric Gay, AP

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A drilling rig is seen near Kennedy, Texas, Wednesday, May 9, 2012. A UTSA report says South Texas's Eagle Ford Shale oil and gas bonanza supported nearly 48,000 jobs last year while creating overnight boom towns cashing in on a $25 billion economic windfall. The energy rush that started in 2008 mushroomed into nearly 1,700 wells last year. less

A drilling rig is seen near Kennedy, Texas, Wednesday, May 9, 2012. A UTSA report says South Texas's Eagle Ford Shale oil and gas bonanza supported nearly 48,000 jobs last year while creating overnight boom ... more

Photo: Eric Gay, AP

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Demands for housing throughout the Eagle Ford play is up due to the high volume of workers brought to the area by the industry.

Demands for housing throughout the Eagle Ford play is up due to the high volume of workers brought to the area by the industry.

Workers lay pipe in Karnes County last year. More than 1,000 wells have been drilled in the county since 2010, and the boom has brought more than 2,000 miles of new pipeline.

Workers lay pipe in Karnes County last year. More than 1,000 wells have been drilled in the county since 2010, and the boom has brought more than 2,000 miles of new pipeline.

Photo: File Photo, San Antonio Express-News

Prepping for a possible Eagle Ford bust

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The Eagle Ford Shale play is one of the hottest natural resource investments for oil and gas companies in the United States, but it can't escape this economic reality: Where there's a boom, there's often a bust.

Across South Texas, there seems to be a nervous undercurrent: The economic activity is great now, but will it last, and for how long?

The region has seen oil and gas come and go throughout the decades — most recently in the 1990s when people thought the Austin Chalk was the next great thing — and it wasn't.

Harold Hunt, research economist with the Real Estate Center at Texas A&M University, noted that Texas has seen a century of oil booms and busts. “Midland and Odessa were booming in the 80s and then they were nothing,” he said. “Now they're blowing and going again.”

So far, the Eagle Ford Shale, a formation that's 50 miles wide and 400 miles long, sweeping from the Mexican border to East Texas, has provided a stunning economic shot in the arm to one of the state's poorest, most historically overlooked regions.

The industry is investing an estimated $30 billion in South Texas just this year, according to the firm Wood Mackenzie. It's an astonishing number, and the University of Texas at San Antonio estimates that the field already supports more than 100,000 jobs.

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But economic risk factors remain. Crude oil is a global commodity, and the Eagle Ford is not isolated from the global or national picture.

Hunt said that one thing that has helped communities thrive over the long term is the presence of industries that are insulated from oil's ups and downs.

“When you see the cities like Victoria or Temple that have lasted over time, they're education centers and they may have some type of regional hospital as well as agriculture or oil and gas,” Hunt said. “They're all regional medical and regional educational centers.”

Gilbert Gonzalez, director of UTSA's rural business program, works with several communities in the shale region on planning for the future.

“What you're doing in the interim is so important. You need to diversify your economic base and create jobs so that you're more resilient as a community,” Gonzalez said. “You need to be mindful of how you invest your money.”

The problem is that many South Texas communities are overwhelmed by managing the oil and gas activity.

“Communities can't run out and recruit businesses right now,” said Thomas Tunstall, director of the Center for Community and Business Research at UTSA. “They don't have time and where would you put everybody? But you can put together plans and strategies now, and have them ready to mobilize.”

Geologists have known for decades about the Eagle Ford, but until the advent of hydraulic fracturing in North Texas' Barnett Shale, there was no way to make oil and gas flow out of the tight rock. The process involves blasting sand, water and chemicals deep underground to open up dense shale, releasing trapped hydrocarbons.

That process has opened up oil and gas fields across the country. But crude oil prices could drop if China's economy stagnates or if the industry overproduces. A more profitable field than the Eagle Ford could emerge. Or a bad spill or accident in a shale field anywhere domestically could cause the U.S. government to clamp down, as happened in the Gulf of Mexico after the BP spill.

But David Blackmon, a managing director of FTI Consulting and a spokesman for the industry website Energy in Depth, said he's more concerned about the price environment than new government relations or bans.

“The good thing is it's onshore. You're not under 5,000 feet of water,” Blackmon said. “If you have well blowout it's a much, much simpler thing to control it and there are several companies that specialize in that who are an hour or two away.”

But commodity prices are another matter.

“The whole industry is a commodity industry. It's a price-directed industry. There's always the possibility that oil prices could tank,” he said.

A few years ago as hydraulic fracturing spread like wildfire and the domestic production of natural gas zoomed upward, prices collapsed to historic lows. Blackmon noted that drilling abruptly shifted away from dry gas fields like the Barnett Shale in North Texas and the Haynesville in Louisiana and East Texas.

The Eagle Ford has some built-in immunity from total price collapse.

It's cheaper to move oil and gas from South Texas to Gulf Coast refineries, which makes the region a less costly place for companies to work than more distant places like Colorado.

Many analysts say that even if crude oil prices drop significantly, some companies (at least those with the best acreage that produces the most oil) could still operate profitably in the region.

And the ability of the Eagle Ford to produce oil, natural gas liquids or dry natural gas makes it possible for operators to shift production when they have to respond to market dips and jumps.

“The Eagle Ford Shale is a unique resource. What you're producing varies throughout the formation,” Blackmon said. “The Eagle Ford is probably insulated from a complete bust more than any shale play in North America.”

Even so, Tunstall said that South Texas should consider everything from parks and beautification efforts to tourism, adding more exotic hunting or expanding agriculture to things such as olive oil.

“It's not just about job growth, it's the quality of life and the environment. Like it or not, the decisions you make now determine what your community is like in 10 years,” Tunstall said. “Do you have plans?”